Capital flowing to the countryside generally does not grow grain: three major difficulties behind it
Regarding the phenomenon noted by China Youth Daily reporters during interviews in Xingtai, Handan and other places, that “capital going to the countryside has the strength to compete for land but not the ability to farm it,” He Xuefeng, director of the China Rural Governance Research Center at Huazhong University of Science and Technology and doctoral supervisor, said this situation is not uncommon nationwide.
According to reports, the China Rural Governance Research Center at Huazhong University of Science and Technology, led by He Xuefeng, has an average of 10 researchers conducting surveys in rural areas every day, covering all parts of the country.
Based on his own and his colleagues' nationwide surveys, He Xuefeng told China Youth Daily reporters: after industrial and commercial enterprises transfer land, the proportion of non-grain cultivation is astonishingly high; successful examples of capital going to the countryside to farm are rarely seen; in places suitable for cultivation, no abandoned land was seen; instead, what was seen was capital going to the countryside competing with farmers to grow crops……
“Although land transferred by capital going to the countryside currently accounts for about 1/10 of the country's transferred land, this momentum is especially bad now.” He Xuefeng was not without worry about this. “If this continues, in another 5 years, I think it will become a major issue.”
Capital going to the countryside generally does not grow grain
China Youth Daily reporters noted that regarding capital going to the countryside, an expert once expressed support for and encouragement of industrial and commercial capital investing in the upstream and downstream segments of the agricultural industrial chain that are suitable for industrialization, large-scale operation and intensive management. At the same time, he also expressed concern about “industrial and commercial capital entering the planting and breeding links closely related to land factors”——this will accelerate the de-grainization and de-agriculturalization of land, and ultimately disrupt the process of industrialization and urbanization.
Some statistics show that as the trend of industrial and commercial capital entering China's agriculture has become increasingly obvious in recent years, while some capital going to the countryside invests in the upstream and downstream segments of the agricultural industrial chain that are suitable for industrialization, large-scale operation and intensive management, it is also entering in a big way the planting and breeding links closely related to land factors. This has aroused experts' concern.
According to statistics from the Ministry of Agriculture, as of June 2014, the area of transferred land nationwide reached 380 million mu, of which 38.647 million mu flowed into industrial and commercial enterprises, accounting for 1/10. The inflow area has shown an upward trend year by year. In 2012, the area of land transferred to enterprises increased by 34% over the previous year, and in 2013 it increased by another 40% over the previous year.
According to recent reports by local media in Liaoning, 1,266 industrial and commercial enterprises in Liaoning Province participated in land transfer, with an area of 1.4437 million mu, accounting for 12.9% of the province's total transferred land area and involving 161,000 contracted farming households.
In Henan, another major agricultural province, media reports also recently said that behind the appearance of steady growth in land transfer, the internal structure of transfer is also quietly adjusting.
According to statistics from the Henan Provincial Department of Agriculture, land transfer in the province began to accelerate in 2009. At present, the total transferred area is 33.93 million mu, accounting for 34.8% of land under household contracted management. Monitoring from 2011 to 2013 shows that the average annual growth rate of the total transferred area was 5%, while the annual growth rate of the area transferred by farming households declined, and the growth rate of new entities such as enterprises, cooperatives and large grain-growing households remained above 40% throughout.
During field research in a certain part of central China, He Xuefeng found that the local area promoted land transfer and set up land property rights exchanges, but almost no transferred land was used to grow grain. And the China Rural Governance Research Center at Huazhong University of Science and Technology, where he works, found in its surveys that after industrial and commercial enterprises transfer land, the proportion of non-grain cultivation is astonishingly high.
Successful business cases are rarely seen
Why does capital going to the countryside not grow grain? He Xuefeng's answer is: capital going to the countryside has no advantage in growing grain.
In He Xuefeng's view, the first reason capital going to the countryside has no advantage in growing grain is that the land rent it pays farmers for large-scale operation is generally much higher than the rent for land transferred spontaneously by farming households: “For capital to go to the countryside to farm, it must rent cultivated land from farmers, and the rented cultivated land must be contiguous and suitable for large-scale operation. To rent contiguous cultivated land, the rent must be based on the rent demanded by the household among the contiguous cultivated land that is least willing to transfer its land out.”
According to his research, nationwide, because large amounts of capital going to the countryside to farm have pushed up land rents, “the highest has reached 1,000 yuan/mu/year, or even higher.”
Although there are differences between the north and south in the planting structure of China's agricultural grain fields: the southern region grows rice, the central region has one season of rice and one season of wheat, and the northern region has one season of wheat and one season of corn. “But under the two-season planting model, the annual net income per mu is only about 1,000 yuan.” He stressed, “This is still when the harvest is good——without reductions caused by irresponsible human labor input or natural disasters.” At a time when land rent is currently too high, it is difficult for capital going to the countryside that rents land to grow grain to have any profit margin.
He Xuefeng believes the second reason capital going to the countryside has no advantage in growing grain is that: for capital going to the countryside to carry out large-scale operation, it must either hire workers or raise the degree of mechanization.
Raising the degree of mechanization means higher fixed capital investment, and hiring workers means paying wages. The agricultural production cycle is long, and field management is very fragmented, cannot be standardized and is difficult to measure, so the cost of hiring people to manage it is extremely high. When farming households farm, they farm their own land, have a strong sense of responsibility, and can complete most field management in their spare time after tea and meals. If capital hires them for field management, however, it must pay wages at market prices, “therefore, when farming households can make money growing grain, capital growing grain never avoids losing money.”
If growing grain has no comparative advantage, is capital going to the countryside good at growing cash crops that have a comparative advantage? He Xuefeng's answer is likewise negative.
The prices of bulk agricultural products such as grain are relatively stable, and the state has protective policies for grain prices. The low risk of growing grain matches its low return——it is hard for farming households to make a lot of money growing grain, but generally they will not lose their capital either.
“Cash crops differ greatly from bulk agricultural products such as grain crops. The high risk of growing cash crops also matches their possible high returns.” Cash crops are diverse in variety, but market supply and demand relations are also unstable, and prices fluctuate greatly. When prices are high, growing cash crops can bring big profits; when prices are low, growing cash crops can bring big losses.
“Because capital going to the countryside may have a greater ability to connect with the market than large growers, entering the field of cash crop cultivation on a large scale may give it the ability to defeat the large households that previously operated cash crops.” But competition between capitals leads to overproduction of cash crops, and when the price law of supply and demand comes into play, it will cause capital going to the countryside to lose everything.
In sharp contrast to the undiminished enthusiasm of capital from all over the country going to the countryside one after another to engage in large-scale operation, in the surveys by He Xuefeng and related researchers, almost all capital going to the countryside that engages in large-scale grain farming loses money. And the research institution where he works has conducted surveys in rural areas across the country and has rarely seen cases of successful capital operation in the countryside, especially those enterprises directly engaged in planting and breeding.
The contradiction of capital and farmers “competing” for land intensifies
On April 16, He Xuefeng gave a lecture at China Agricultural University titled “Agricultural Modernization for Whom.” “The original title was ‘Can migrant workers return to the countryside’, but it was considered too ‘rustic’, so I spoke on this somewhat more ‘foreign’ topic.” But in his view, the main thrust of the two titles is actually the same——“that is, both must emphasize that the smallholder economy is very important.”
He Xuefeng believes that under the situation in which capital from all over the country is going to the countryside to farm one after another, local governments must pay sufficient attention to this: they should not only not “encourage” it, but also “set limits” to protect the smallholder economy.
He explained that at present China has more than 200 million farming households, more than 200 million agricultural laborers, more than 600 million rural residents, and 260 million migrant workers who have gone to cities to work or do business. China's current national conditions are that China still has 900 million farmers who need to rely on rural areas and agriculture. And the massive migration of farmers into cities can only be a slow process. “That is to say, at present and for a long period in the future, agriculture is very important to more than 200 million farming households and 900 million farmers.” In his view, at present and for a long period in the future, what rural areas face is not the problem of no one farming the land, but the problem of people having no land to farm.
During his research, He Xuefeng found that the currently emerging land abandonment occurs in two situations. One is in high-altitude cold mountain areas, “these mountain lands lack irrigation and have poor soil, and were never suitable for growing crops; instead, they should be returned to forest.” The other situation is that because the original collective irrigation facilities have disintegrated, some land has become a blind spot for irrigation, “nine plantings, nine failures,” and “farmers are unwilling to cultivate such land, and capital going to the countryside will be even less likely to plant it.”
He Xuefeng stressed that, based on what he has seen across the country, apart from these two situations, all land suitable for cultivation is farmed by farmers.
And in many places, as capital goes to the countryside to farm one after another, the contradiction of capital and farmers “competing” to grow crops is intensifying. “At present, cities have accumulated a huge amount of excess capital. Once it can freely go to the countryside, it will truly be like a flood of savage beasts, and the consequences are unimaginable.”